V18 Broadcast - Acquisition of RIL stake in ETV a huge positive ::Edelweiss,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

TV18 Broadcast (TV18) has announced the acquisition of ETV’s bouquet of channels through a rights issue which will also help it repay existing debt and fund working capital needs. Post the deal, the TV18 bouquet will include more than 25 channels which will boost subscription revenues in both domestic and international markets and impart it higher bargaining power with advertisers. This will enable the company to have a strong pan-India bouquet of channels like Star and ZEE networks and edge ahead of Sony. Reliance Industries (RIL), which has invested ~INR26bn in ETV, will divest a part of the interest in ETV to TV18. Key risks/concerns are huge dilution, competition in Kannada and Telugu markets with Sun TV (who is TV18’s distribution partner) and potential merger blues.

Acquisition of ETV’s bouquet to boost subscription revenues

TV18 has announced 100% acquisition of five ETV news channels, 50% acquisition of five ETV non-Telugu GEC channels and 24.5% acquisition of two ETV Telugu channels. The TV18 board of directors has sanctioned INR21bn for these acquisitions. Apart from this, the company will also have an option to buy balance 50% interest in ETV’s non-Telugu GEC channels and balance 24.5% interest of ETV’s Telugu channels.

Rights issue of INR27bn each to fund deal for TV18 and Network18

Both Network18 and TV18 have approved a rights issue of INR27bn each. The promoter companies have entered into an arrangement with a trust set up for the benefit of RIL to secure the funding for the rights issue. Network18 will subscribe to ~INR14bn in the rights issue of TV18 (combined issue of ~INR40bn post net of subscription amount).

Outlook and valuations: Positive; maintain ‘BUY’

Following the completion of this deal, TV18 will have minimal debt, which along with higher subscription revenues is a huge positive over the long term. At CMP of INR34, the stock is trading at P/E of 22.3x and 13.4x on FY12E and FY13E, respectively. We maintain our ‘BUY/Sector Underperformer’ recommendation/rating.